BlackBerry's tough pitch to find a buyer

Christopher Williams, Katherine Rushton

Before Thorsten Heins, the chief executive of BlackBerry, introduced its new smartphone software, BB10, alongside new handsets in January, he warned rivals not to underestimate his company. They need not have worried.

By planting a "for sale" sign in the ground outside BlackBerry HQ in Waterloo, Ontario, the 55-year-old German has this week admitted as much. Although BB10 attracted praise from reviewers and was backed with a big marketing push, it has failed to halt the decline in the company's share of the smartphone market it pioneered.

Just last week the industry analysts IDC said BlackBerry had slipped behind fellow struggler Microsoft and into fourth place in the smartphone league table, with Apple and especially Google way out in the lead. The iPhone accounted for 13 per cent of shipments and the dozens of handsets using Google's Android technology, available from Samsung and others, nearly 80 per cent. Despite its new software and hardware, BlackBerry sold 12 per cent fewer handsets in the second quarter than last year.

If it decides to sell the business, the special committee of the BlackBerry board convened to explore strategic options therefore faces a tough pitch to potential buyers. With no sign of a turnaround, the portfolio of technology patents won by the company during its heyday and more recently acquired from outside is likely to be the focus of any deal for the handset business.

Research In Motion, as BlackBerry used to be known, may have been the default choice for most companies equipping staff with mobiles a few years ago, but it is now so small it is unlikely even to appeal to buyers seeking to establish a foothold in this intensely competitive market.

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"BlackBerry's handset business is very precarious," said Daniel Gleeson, an analyst at Screen Digest. "The patent portfolio would be very interesting to a lot of people and BlackBerry would want to sell it with the handset business.

"What happened with Google and Motorola might put some people off and bring the price down, however." Google bought Motorola's struggling mobile phone unit for $US12.5b in 2011. It was the biggest ever Google acquisition, even though executives openly admitted they were interested in the patent portfolio, not the business. It is clear today, however, that they overpaid: the level of damages awarded by intellectual property courts has fallen and attempts to ban rival smartphones have failed in practical terms.

Macquarie analysts believe BlackBerry's portfolio is worth around $US1.6n. Aside from its $US2.8b cash, the company's other valuable asset is its corporate email software, BlackBerry Enterprise Server. It is popular with cautious IT departments which do not upgrade once a year like smartphone consumers and are more concerned about security than the latest apps. What's more, BlackBerry has recently adapted the software so it can manage secure email to iPhones and Android devices, so it could be spun off and sold to a big corporate technology vendor such as IBM or Cisco.

"The fact is BlackBerry has been up for sale as a whole for at least a year," said Mr Gleeson. "What this announcement today says is that they haven't found anyone interested and they're going to have to break it up." Buyers eyeing Blackberry would also have to get past Canadian politicians and regulators, who would wince at the prospect of selling a corporate crown jewel to a foreign competitor. The growing Chinese brands Huawei and ZTE would be ruled out by BlackBerry's government clients.

Most of its prospective suitors are American. Amazon and Microsoft have considered buying the business outright, while IBM looked at cherry-picking. Dell also considered forging a strategic alliance in enterprise software. Nokia, the Finnish mobile maker, would have a hard time convincing shareholders it should acquire Blackberry when it is facing a very similar set of problems of its own.

As the winners and losers in the smartphone boom become clear, it is now a buyers' market. "There are better options out there," said one leading technology analyst. "If you were, say, IBM, and you wanted to get into the smartphone business, HTC is probably a better target for you." "It has a bigger devices business. The products are made in Taiwan and it is probably about the same price as BlackBerry right now." It means that the most likely home for BlackBerry as a smartphone brand is in the hands of private equity. A well-timed, anonymously sourced report last week said the board was increasingly open to such a cut-price deal, having failed to attract a buyer among the company's peers. Once the smartphone pioneer they all copied, BlackBerry is now apparently a business none of them want.